MTN Group profit for 2015 falls 37%

AlexandraWexler

JOHANNESBURG--South Africa's MTN Group Ltd. (MTN.JO), Africa's largest telecommunications company, said 2015 profit tumbled 37%, as the company battles Nigerian regulators over a massive fine in addition to hyperinflation in Iran, Syria and Sudan, as well as losses from investments in internet and tower companies.

The Johannesburg-based telecom giant reported a profit of 20.2 billion South African rand ($1.3 billion) during the year ended Dec. 31. Headline earnings per share, which strip out certain exceptional items, came in at ZAR7.46 cents, compared with ZAR15.36 cents a year earlier, well beyond expectations for at least a 20% drop.

Revenue was up 0.1 % at ZAR147.1 billion, as subscribers grew 4.1% to 232.5 million across MTN's 22 markets. The company declared a second-half dividend of ZAR8.30, for a total 2015 dividend of ZAR13.10, up 5.2% from 2014. The company said it would continue to focus on improving network quality and capacity in key markets including Nigeria, South Africa, Ghana and Cameroon.

While little known in the U.S., MTN is a telecommunications juggernaut in Africa and has expanded across the Middle East and other regions, including in high-risk markets such as Syria and Iran.

"MTN Group's 2015 financial results reflect the challenging operating environment the business experienced in the year," the company said in a statement. "Weak macroeconomic conditions, increased market competition, heightened regulatory pressures, notably in Nigeria, and operational challenges in some of our markets resulted in a lower-than-expected performance."

In October, the Nigerian Communications Commission fined MTN's Nigerian unit $5.2 billion, or roughly a quarter of the country's federal budget, alleging that MTN had missed a deadline to deactivate 5.1 million unregistered SIM cards under regulations meant to combat terrorism. The NCC subsequently reduced the fine to $3.9 billion. On Thursday, MTN said it recorded a ZAR9.287 billion provision for the Nigeria fine in 2015, and it is continuing to engage with authorities there over the "late disconnection."

In February, MTN said its Nigerian unit paid $250 million to the federal government of the country towards in an effort to settle the penalty over the alleged breach of rules on SIM-card registrations. MTN Nigeria said it hoped the payment would be applied toward an eventual settlement. The company has also agreed to withdraw the matter from the Federal High Court in Lagos.

Hyperinflation also hit earnings, the company said Thursday. Iran is no longer considered a hyperinflationary economy as of July, but the impact of hyperinflation on the group's results will continue for as long as Syria and Sudan are considered to be hyperinflationary economies, MTN said. Losses from investments in other companies, from internet to towers, hurt the company's profit as well.

"While these investments are a short-term drag on reported earnings, they remain key elements in the long-term strategy of the group," MTN said.

In December 2015, the company announced the implementation of a new operating structure incorporating three regions: West and Central Africa, South and East Africa and the Middle East and North Africa, in order to strengthen governance and operational oversight.

"Complying with regulatory requirements and, in particular, with subscriber registration regulations is a priority," the company said. "Subscriber registration is often highly complex given the limited national identity databases and personal documents in many of the countries in which we operate."

Still, the company said Thursday that it had disconnected an additional 4.5 million subscribers in Nigeria at the end of February, following a process initiated with the NCC in the last quarter of 2015.

Nigeria, with a population of about 184 million, is MTN's biggest market and an enticing growth area for telecommunications companies globally. MTN's Nigerian operations account for about 40% of the company's profit. Still, exclusive of the fine, over the past three years MTN has come up against the local competition regulator, which in 2013 cracked down on the company for being a "dominant actor," capping its market share.

In October, the NCC withdrew its approval process for new tariff plans and promotions until certain tariff plans and promotions linked to the "dominant operator" ruling were removed from the market.

But the company's arrival in Nigeria also coincided with the rise of terrorism, mainly by Boko Haram, an insurgency fighting to impose Islamic law. After a series of church bombings, the government introduced new regulations that gave telecom companies two years to collect personal data on all of their prepaid customers, including names, birthdays, religions, and addresses. The aim was to help track terrorists and criminals in the country.

That deadline expired in 2015, but Nigerian authorities say that MTN kept anonymous lines open--even as the government argued that terrorists could use these numbers to conduct kidnappings and bomb attacks. The original fine of $5.2 billion was based on a fine of about $1,000 for each SIM card the government said violated those rules.

The search for a new chief executive is expected to conclude in the second quarter, the company said, while Executive Chairman Phuthuma Nhleko, who took the helm of the company after Sifiso Dabengwa resigned as MTN chief executive in November, continues to act as interim CEO. Mr. Nhleko served as the company's chief executive until 2011.

The company's net debt ballooned to ZAR31.64 billion in 2015, compared with net debt of ZAR4.54 billion in 2014, due to dividend payments, capital expenditures, the acquisition of a 4G/LTE license in Nigeria and other license renewals across the continent.

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